Kawan Renergy Berhad - More Opportunities in the Pipeline
Fri, 03-Oct-2025 08:46 am
by Tan Sue Wen • Apex Research

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KENERGY (0307)

Target Price (RM)

1.020

Recommendation

Buy

  • KENERGY, as exclusive distributor of Rolls-Royce gensets in Malaysia, is set to benefit as Tier-4 data centres drive demand for high-efficiency, rapid-response backup solutions.

  • Near-term catalysts from cogeneration EPCC opportunities driven by rising energy efficiency and sector expansion. CHP systems (70-90% efficiency), compared to 40% for conventional gas power, are attractive to steam-intensive industries. The Group is currently negotiating several cogeneration contracts, with potential wins of up to RM100m, providing visible upside to earnings growth.

  • KENERGY has close to RM350m in tender headroom (assuming a 10% performance bond), providing ample capacity to participate in large-scale industrial and renewable projects. We forecast order replenishment of RM150-260m for FY25-FY28, implying a 105.6% CAGR over FY24-FY27F.

  • We initiate coverage on KENERGY with a BUY recommendation and a target price of RM1.02, by applying a 19x PER to our FY26F EPS of 5.3 sen.

 

Key Investment Highlights

Riding the Data Centre Wave. KENERGY is the exclusive distributor of Rolls-Royce diesel gensets for data centres in Malaysia. Rolls-Royce gensets, widely used in mission-critical facilities, particularly Tier-4 data centres, offer high efficiency, rapid load response, and fuel flexibility, including HVO. As global OEMs face supply bottlenecks, Rolls-Royce is expected to increase its market share as hyperscale clients prioritise uptime. For context, backup power can account for 10-30% of the total build costs in a 10MW data centre. KENERGY is well positioned to capture multi-phase contracts from the growing data centre market, supported by the rising demand for Tier-4 compliant facilities.

 

Strategic Positioning in High-Growth Segments. KENERGY’s near-term growth is expected to be driven primarily by EPCC opportunities in cogeneration (CHP), fuelled by increasing energy efficiency demands and the growth of energy-intensive sectors. CHP systems offer 70-90% efficiency, compared to around 40% for conventional gas power, making them highly attractive to steam-intensive industries such as chemicals, textiles, and food processing. KENERGY maintains a competitive edge, with 60% of components fabricated in-house, enabling cost efficiency, faster execution, and competitive pricing. Management is currently negotiating several cogeneration contracts, with potential wins of up to RM100m, providing significant upside to earnings growth.

 

Visible Order Book Replenishment. With a net cash position of RM34.9m and assuming a 10% performance bond requirement, KENERGY has c.RM350m in tender headroom, providing ample capacity to participate in large-scale industrial and renewable projects. Near-term replenishment is expected from a recovery in industrial process equipment and active tendering for CHP projects, alongside a gradual increase in orders for genset and Solar turbines solutions, driven by rising investment in Tier-4 data centres. We are adopting a conservative order replenishment forecast of RM150-260m for FY25-FY28, which implies a 105.6% CAGR over FY24-FY27F.

 

Opportunities in Power Plants. KENERGY is set to benefit from rising demand for Solar Turbines in open-cycle gas turbine (OCGT) plants amid Malaysia’s electricity supply-demand imbalance. About 7.8GW of capacity is scheduled to retire by 2030. Assuming 15-20 new hyperscale data centres are built, this could add 3-4GW of demand (13-17% of current installed capacity). OCGTs are seen as a contingency solution as they can be commissioned within two years, offering faster deployment compared with CCGTs despite lower efficiency. A typical 100MW data centre would require an OCGT plant with four to five Solar Turbine units, driving strong order book visibility for KENERGY.

 

Valuation & Recommendation. We initiate coverage on KENERGY with a BUY recommendation and a target price of RM1.02, by applying a 19x PER to FY26F EPS of 5.3 sen.

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